Singtel to buy Telecom New Zealand?

, posted: 17-Apr-2006 15:41

Despite having cocked a snook at both government regulation and ran rings round the competition, the share price of Telecom New Zealand is moving in the wrong direction - down.

Bloombergs report that not only have Telecom New Zealand shares dropped 7.5 per cent this year, but analysts at Credit Suisse Group now reckon the telco has a buyout bull's eye painted on its backside. Low debt, assured monopoly and a cleaned-up operation that is by and large managed by Alcatel and Lucent makes Telecom New Zealand an attractive target, especially as the share price is falling.

So who would buy Telecom New Zealand? Earlier this year, I was talking to analysts about Telecom jettisoning AAPT, which has turned into a huge, NZ$2 billion albatross around the telco's corporate neck. The suggested buyer was Optus in Australia, which is owned by state-controlled Singtel. However, Singtel-Optus are not interested in AAPT alone, but the entire Telecom group, apparently.

Since New Zealand is still undergoing a transition to IP-based communications and is a market where the incumbent faces limited or no competition for the foreseeable future, buying Telecom would make sense for Singtel which needs to find an outlet for expansion somewhere. Australia is a much tougher market than New Zealand, with the soon to be privatised incumbent Telstra being under pressure by aggressive regulation as well as competition, so even though the market across the Tasman is considerably smaller, it remains attractive for a cash-rich player seeking access to protected revenue streams.

Telecom's half-share of the Southern Cross Cable is also likely to be of interest to Singtel. Apart from Telecom New Zealand, the cable is owned by Optus (40 per cent) and MCI-Verizon (10 per cent). International transit charges in New Zealand are very high, and ISPs are reporting that the SCC providers are bumping up bandwidth costs for the first time ever this year.

All in all, if the New Zealand government allows the sale, Telecom could be a nice little cash cow for Singtel.

Update: Corrected SCC ownership information.

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